A double edged sword

A news bulletin was released earlier this week with very little fanfare on the latest round of results for the Family Income and Expenditure Survey (or FIES). It showed that between 2006 and 2009, there was an improvement in the overall incomes, savings and expenditures of families on average and a reduction of income disparities between the wealthiest and poorest of households.

Prof Winnie Monsod of the UP School of Economics attributes this to a sustained period of economic growth peaking at 7% in 2007, the longest and highest rate over the past 30 years. Augusto Santos of NEDA on the other hand credits the conditional cash transfers program initiated by the previous government in 2008 as one of the policy interventions that could have led to this outcome.

All this would have served the Arroyo regime well had it been reported prior to or during the last presidential election, when it was seeking a mandate for its anointed successor. Its economic credentials were tarnished by reports of poverty incidence worsening between 2003 and 2006 contrary to what you would expect following a period of sustained economic expansion under her stewardship.

Of course one could argue that the increase in the VAT rate in 2005 from 10-12% which while regressive was also deemed necessary to avert a fiscal crisis caused all the grief. Government planners then quickly realized that the fiscal space they created had to be used to counter the harsh impact of higher taxes on the most vulnerable. This is what led to many of the socially targeted interventions including the Conditional Cash Transfers program (or CCT) and the infrastructure plan that followed. It now appears that they got it right although hardly anyone will trumpet these successes now.

All this points to the problems associated with time lags in measuring and reporting social and economic indicators for the purpose of crafting public policy. Data gathering always comes at a cost, but without frequent and timely reporting, policymakers are practically flying blind not knowing what impact if any their programs are having on the ground. It may not suit PNoy’s government to acknowledge the policy successes of its predecessor and arch-nemesis in the house, but it can also serve its purpose given that it is pushing for the expansion of the CCT and infrastructure through the PPPs.

According to Prof Monsod, the Gini coefficient for 2009 which reflects income inequality is “the lowest it’s ever been as far as I can remember.” If that is the case then it could account for improvements in the mood of the people as reported by some public surveys (the science of happiness suggests there is a causal link between income equality and happiness). It would also point to the importance of maintaining the momentum for growth through investments in public infrastructure as well as social policies that reduce income disparity like the CCT.

Agrarian reform which has a spotty record globally was an attempt to correct poverty and social inequality through asset distribution. That has proved difficult to implement in the Philippines. Now the CCT and other social programs like improving education and health are attempting to do it through income and human capital distribution.

If the policy settings of the previous government were effective in bringing about an improvement in economic and social well-being, then it would be a sign of maturity for all parties to come together now and work towards expanding them in a responsible manner. Enough with the bickering: it is time for a development consensus to be formed about the way forward.

Doy Santos aka The Cusp

Doy Santos is an international development consultant who shuttles between Australia and the Philippines. He maintains a blog called The Cusp: A discussion of new thinking, new schools of thought and fresh ideas on public policy (www.thecusponline.org) and tweets as @thecusponline. He holds a Master in Development Economics from the University of the Philippines and an MS in Public Policy from Carnegie Mellon University.